This requires exploring for gas in many places which may or may not lead to fruition. The static trade off theory is important here as it illustrates that there is a trade off involved between equity and debt financing in terms of the latter offering tax shield benefits as well as greater impetus for efficiency and returns compared to the bankruptcy and distress costs that the pressure may produce on the organization.
Thus those business entities that have tangible assets on their balance sheets as well as significant income can afford to have high debt. This applies to the energy sector as well as to the utilities in which Centrica operates as heavy capital investment requires machinery and the gas that is acquired is at an inflated price in theUKandEuropeas of recent reports. This allows assets of significant value to be kept. The energy sector is also characterized by high taxable incomes for firms with successful drills. Centrica in particular has been able to augment its energy business with a degree of diversification in the utilities which allows it to record stable income. Thus the Static trade off theory supports the capital structure Centrica employs.
These are excerpts of essays please place order for custom essay paper, term papers, research papers, thesis, dissertation, book reports and case studies.